On Wednesday, the Democratic Party of South Korea introduced a proposed ‘Digital Asset Basic Act’ to establish a regulatory framework governing digital assets. The proposal covers aspects such as issuance, trading, custody, and supervision of these assets.
The proposal acknowledges that “digital assets are emerging as a pivotal connector between the real economy and financial markets.” It categorizes value-linked digital assets, including those pegged to fiat currencies or tangible assets, necessitating issuer authorization, refund reserves, and redemption obligations.
This initiative comes in the wake of stalled discussions on the Digital Asset Basic Act since earlier this year. Disagreements arose among regulators over who should issue won-pegged stablecoins. The Bank of Korea asserted that only banks with at least 51% ownership should be authorized to issue these, while the Financial Services Commission cautioned such restrictions could stifle innovation.
The bill aims “to lay the groundwork for Korea’s leadership in the global digital financial landscape.” It mandates entities issuing these assets to secure approval and adhere to standards including capital requirements, operational capabilities, and reserve strategies.
Furthermore, the legislation intends to impose licensing, registration, and reporting obligations on businesses involved with digital assets, spanning trading, brokerage, custody, and advisory services. Additionally, it sets forth rules for disclosures, internal controls, and market conduct, explicitly banning unfair practices like market manipulation and misuse of non-public information.
The proposal also advocates for the establishment of a digital asset committee to oversee policy review and coordination, alongside crafting national basic and implementation plans for this sector.
It highlights that South Korea’s existing system primarily focuses on investor protection but lacks an all-encompassing framework addressing issuance, disclosure, and market structure.
This comes after recent announcements by the country’s Financial Services Commission and Financial Supervisory Service on Wednesday, mandating all domestic cryptocurrency exchanges to implement a stringent, unified system for withdrawal delays. This measure is intended to curb a spike in voice phishing scams that exploit transaction speed.